The market holds its breath for the "delayed judgment": September PCE will be announced tonight. If inflation remains sticky, will it shake the consensus on the Federal Reserve's interest rate cut next week?

After experiencing a period of intense volatility in November, the U.S. stock market is once again approaching historical highs. However, behind this rebound, investor sentiment is not at ease: on one hand, inflation remains stubbornly high, while on the other, the job market is gradually cooling, creating conflicting macro signals.

In this context, the September PCE (Personal Consumption Expenditures Price Index), which will be announced tonight, has become a "late but crucial ruling" in the eyes of the market. Due to the impact of the U.S. government shutdown, the September PCE and personal income report have been postponed to December 5th at 10 AM Eastern Time (evening Beijing Time), from the originally scheduled release date of October 31st.

Wall Street expects that the core PCE price index preferred by the Federal Reserve will rise by 2.8% year-on-year in September, up from 2.7% in August, which will be the highest level since April 2024. If the data meets expectations, core PCE inflation will have been above the Federal Reserve's 2% target for 55 consecutive months.

Additionally, the September PCE price index is expected to rise by 0.3% month-on-month, with the core index increasing by 0.2%. In terms of annualized data, the overall PCE increase is expected to remain unchanged at 2.9%.

Despite potentially disappointing inflation data, the market still expects the Federal Reserve to cut interest rates by 25 basis points next week, with the CME FedWatch tool indicating a probability of 87%. Policymakers are facing dual pressures: persistent inflation on one side and an increasingly weak job market on the other.

On Friday, Asian and European stock index futures rose by 0.2% to 0.4%, with the MSCI global index just 0.5% away from the historical closing high set in October. The U.S. dollar index declined, heading towards its fourth weekly drop in five weeks.

Market Anxiety in a Data Vacuum

Recently, the U.S. economy has sent strong "divergent signals."

On one hand, "soft data" such as ADP employment figures and consumer confidence surveys continue to weaken, with hiring slowing and job seekers increasing, reigniting discussions about an economic recession; on the other hand, retail earnings reports have been exceptionally bright, with companies like Dollar General and Macy’s showing that consumers are still spending, and Black Friday spending far exceeding expectations.

Mark Hackett, Chief Market Strategist at Nationwide, bluntly stated: "Soft data has become increasingly unreliable, so investors are starting to rely more on hard data like PCE to 'fill in the gaps.'"

This makes tonight's report a key test of whether the current market optimism is justified.

Job Slowdown vs. Stubborn Inflation: The Federal Reserve Caught in the Middle

The current Federal Reserve is facing a typical "dual mandate conflict" - controlling inflation: requires maintaining high interest rates; stabilizing employment: requires cutting rates as soon as possible.

Now, the pressure of weakening employment is overshadowing the alarm of inflation.

Data released on Thursday showed that initial jobless claims fell to a three-year low last week, and employment has not yet "spiraled out of control"; however, the trend of corporate layoffs and slowing hiring has not yet reversed. A series of data, while indicating that the labor market "has not collapsed," makes it difficult for people to be completely reassured about growth prospects.

Strategist Jack Janasiewicz pointed out: "Inflation may remain sticky, but it will not spiral out of control again. In contrast, if the unemployment rate rises rapidly, the impact on the economy will be greater."

For this reason, the current interest rate futures market shows that the probability of the Federal Reserve cutting rates by 25 basis points next week is as high as about 87%. This is also one of the main drivers behind the recent recovery of U.S. stocks and global stock markets.

Don Rissmiller of Strategas stated: "Based on timely data and reports with leading indicator characteristics, the U.S. labor market has not collapsed. We still believe the Federal Reserve will cut rates by another 25 basis points in December."

If PCE exceeds expectations, the market may be forced to "reprice"

The question is, if tonight's PCE data significantly exceeds expectations, such as core inflation rebounding to 0.3% or above month-on-month, and the annual rate re-establishing above 3%, will the market's rate cut expectations be shaken?

Currently, the S&P 500 index is only about 0.5% away from its historical high, and the Nasdaq and global stock indices are also nearly back to the records set in October. In other words: the market has already "celebrated" the Federal Reserve's pivot in advance, and any unexpected inflation data could serve as "cold water" for the year-end rally.

Barclays even pointed out that the market has almost fully priced in a rate cut in December, combined with "year-end inertia rise + FOMO sentiment," which has quietly increased the risk of a short-term pullback.

In simple terms, tonight's PCE data will determine three possible paths:

1. In line with expectations (around 0.2% / 2.9%) → Rate cut expectations strengthen, year-end Christmas rally continues.

2. Below expectations → Market risk appetite continues to warm, U.S. stocks may hit new highs.

3. Above expectations → Rate expectations are repriced, and the market may experience a rapid pullback.

In such a complex environment of macro uncertainty, this "delayed inflation answer" may truly determine whether the Federal Reserve's rate cut next week is a steady pivot or a dangerous gamble.